Many look at Stitch Fix's IPO with a disappointing gaze. After all, they priced at $17 which was below the original $18-20 range, and they ended up selling fewer shares than anticipated due to weak demand. This also comes in the aftermath of Blue Apron's underwhelming public debut where they priced at $10 and have dramatically slid down to $3 per share. On an absolute basis, it's easy to bucket these two companies together. After all, they are both large-scale, high growth subscription commerce companies that had lackluster IPOs. However, in my eyes Stitch Fix is actually a massive success. The two companies provide us with a great opportunity to examine our perspective on what really defines "success".

Both businesses are quite similar stemming from the fact that they both sell physical goods via a subscription model. As a result, they share many of the same characteristics that tend to plague these types of model. They have set AOVs with limited ability to upsell, high churn / decreasing customer spend over time, and an insatiable appetite for new customers to make up for lost customers. Both companies had explosive revenue growth early on that is now starting to slow, and both are spending more on sales and marketing as a % of revenue to continue propping up growth.

You will often hear the terms "leaky bucket, or "treadmill effect" when discussing these types of models. That is not a knock on these businesses, it is merely a simple truth inherent in these models that must be acknowledged. Ben Thompson described this incredibly well in his Exponent podcast. He explained that this simple acknowledgment early in the company's life is fundamental in determining the course of the company. He argues that Stitch Fix understood this early on, and thus managed the company differently. They understood that they needed to reach profitability earlier in order to control their destiny, and as a result they ended up raising only $42M compared to Blue Apron's $200M. Therefore, it doesn't matter whether Stitch Fix is worth $1B, $2B or $3B in the public markets. In the end, founders, employees, and private investors will do incredibly well, and if the stock holds, public investors might also do well (or at the very least not get totally burned).

And that should be the definition of success. Success = a positive outcome for all constituents involved in a company.

In Blue Apron's case, while some parties have benefited from the IPO's liquidity, many employees are now holding out-of-the-money stock options, late stage investors have lost tons of money, and even public market investors have gotten walloped due to the stock's decline following an aggressive initial pricing.

Ultimately, long-term fundamentals are what matter most. As Ben Thompson puts it, great businesses need to find a scalable way to acquire the marginal customer. While Stitch Fix and Blue Apron's early core customers might love the service, the incremental customer attracted through broad-based advertising will probably be less valuable. Compare this to a service like Netflix where the marginal user today is getting far more content than a user several years ago for roughly the same price.

Perhaps Blue Apron could have spent more on R&D and explored adjacent product offerings earlier. Maybe they could have launched new markets to diversify their customer base. At the very least, they would have been better served by raising less money and focusing on building something where everybody wins, rather than trying to reach for something that could never be. Their current enterprise value is about $500M, but imagine what a success that would be in a parallel universe where they raised no capital and expectations were set differently.

Both of these category-defining companies have been beautiful experiments and exciting to watch. Hindsight is of course 20/20.